FTSE 100 chiefs see remuneration packages fall

FTSE 100 executive directors have, on average, seen falls in their overall remuneration packages this year, according to consultants Watson Wyatt.

This is largely because of increasingly demanding performance conditions imposed on their long-term incentive plans.

The Executive Reward Survey 2005 found that the average basic salary and bonus for a FTSE 100 chief executive have continued to rise this year, by 9.1% and 29% respectively.

The increased bonuses have been paid out this year to reward an average increase in profits last year of 20%. But chief executives’ total remuneration has fallen on average by 7% to £2.1m, because the value of their long-term incentives has in many cases been reduced.

Similarly, the basic salaries and bonuses for other FTSE 100 executive directors have also increased – by 7.8% and 22% respectively – while overall their total remuneration has fallen on average by 18% to £980,000.

Damien Knight, executive reward consultant at Watson Wyatt, said there was a risk that institutional investors may have been too tough in their attempts to ensure executive pay is aligned to shareholder interests.

“Shareholders have understandably been keen to use performance conditions to ensure that the long-term incentives offered to executives are paid out on their actual performance rather than fortunate market conditions,” he said.

“But the performance measures they have imposed have in some cases reduced the real value of the incentives to the executives. The question is: does this leave executives suitably motivated and aligned to shareholders’ interests?”